FIRST: the new kid on the block
This week, we at Bourse take a look at the Banking sector of the Trinidad and Tobago Composite Index, paying special attention to the newest addition, First Citizens Bank Limited.
The Banking sector of the Trinidad and Tobago Composite Index (TTCI) is the largest sector of the TTCI and is currently valued at TT$53.5B, a 5-year high. It accounts for 49 per cent (Exhibit 1) of the total market capitalisation and is comprised of six companies, including the newest addition of First Citizens Bank Limited (FIRST). The other five companies are: BCB Holdings Limited (BCBTT) which is suspended with a view to delist, First Caribbean International Bank Limited (FCIB), National Commercial Bank Jamaica Limited (NCBJ), Republic Bank Limited (RBL) and Scotiabank Trinidad and Tobago Limited (SBTT). The delisting of BCB Holdings Limited will marginally reduce the banking sector’s market cap to 48 per cent of total market cap.
The Banking sector has been on an uptrend over the past 5 years, with the Banking Index increasing by 52 per cent over the period. The sub-index has been driven primarily by significant price increases in SBTT (up 128 per cent) and RBL (up 49 per cent). As at 27 September 2013, RBL’s market cap accounted for 33 per cent of the total market cap of the Banking sector. Its market cap has increased in value from TT$12B in 2009 to TT$17.7B as at 27 September 2013. SBTT is the second largest bank by market cap, accounting for 23 per cent of the sector followed by FCIB at 20 per cent.
FIRST leads in Value traded for September…
FIRST has dominated the total value traded in the banking sector since its debut on 16 September with 1.58M shares traded as at 27 September 2013 valued at $56.9M representing 78 per cent of the banking sector and 42 per cent of the total market. While RBL leads in market cap, the total value traded over the same period accounted for 17 per cent of the banking sector and 9 per cent of the overall market.
FIRST- Too fast too soon?
At its IPO price of $22, FIRST’s market cap when listed was $5.5B, accounting for 12 per cent of the Banking sector and 5 per cent of total market cap. FIRST’s share price has appreciated by 60 per cent to $35.14 (Exhibit 3) over a period of nine trading days and now accounts for 16 per cent of the Banking sector and eight per cent of total market cap. A total of 1.58M shares traded in FIRST accounting for 22 per cent of the total shares traded in the Banking sector YTD.
During the first three days of trading, FIRST’s share price increased by the absolute maximum daily change permitted of 15 per cent each day. At the close of its first day of trading on 16 September 2013, there were bids for 3.2 million shares on the market at the highest intraday trading price of $25.30. Investors who would not have gotten their full subscription of shares would have joined the queue of bids in the hopes of getting shares as close as possible the IPO price.
Since then, bids have fallen-off with a total of 58,466 bids in prices ranging from $32 to $34.98 with the majority of the bids at $34.50.
The market seems to have consensus on the valuation of FIRST, with its share price having settled around the $35. Based on financial projections provided by First Citizens in their Prospectus, 2013 EPS for the firm is estimated to be $2.34. Using a P/E of 15 times, the ratio of its closest comparable company in the industry, gives a valuation of $35.00 for FIRST, arguably the fair value of the stock based on multiples analysis and as seen by market sentiment.
The 1.4M shares traded in FIRST YTD as at 26 September 2013 represents 3 per cent of the 48M shares offered in the IPO and 0.6 per cent of total issued share capital. On the assumption that all other categories opt to hold their FC shares except for individuals and employees, the 1.4M shares traded represents 11 per cent of the shares allotted to individuals and 8 per cent of the shares in free-float.
By definition, free-float represents the number of shares most available to the market excluding possibly ‘locked-in’ shares held by governments, corporations and mutual funds. As seen in Exhibit 4, while the Banking Sector accounts for almost half of the total market cap on the TTCI, the amount of shares in free-float for its components based on the definition above, is considerably less.
This highlights the liquidity constraints facing the banking sector. Stocks such as SBTT and RBL account for 16 per cent and 11 per cent of total market cap respectively. Based on the shares in free-float, the market cap of these stocks reduces significantly to 2.5 per cent for SBTT and 2.8 per cent in RBL.
Based on FIRST’s free-float, the per cent of total market cap would fall from 8 per cent (based on total issued share cap) to 0.6 per cent of total market cap. This free-float of shares available coupled with the substantial demand for the stock, could explain the significant price appreciation in the share over the past nine trading days.
The Bourse View…
At a price of $22, First Citizens was trading at a forward P/E of 9.4 times with an estimated dividend yield of 4.8 per cent. At $35, FIRST’s forward P/E is now closer to market P/E at 15 with an estimated yield of 3 per cent. We hold to the view that the share is trading within its fair value range based on the estimated earnings of FIRST.
For more information, investors can call Bourse at 628-9100 or visit us at any one of our offices. Further information is also available on Bourse’s website at www.bourseinvestment.com and Bourse Securities Limited Facebook page.